As a first-time investor, youre often guided to index funds as the place to start your wealth-building journey.
Lets take a look at some index fund basics that can help you orient yourself.
As weveexplained before, an index fund is a collection of investments you buy in one package.
That packagethe fundtries to mirror a certain performance level for that corner of the financial market.
Market capitalization:Companies get grouped by their value.
International markets:Index funds arent just for U.S.-based companies.
Its one size fits all, Spero said.
But whats in it?
Its not one fund, he explained.
Instead, there are index funds packaged within that target date fund.
Value indexes:Made up of company stocks that are trading at low prices compared to the companys earnings.
Socially-responsible funds:Dont want your investment portfolio to include liquor companies, gambling, or or fossil fuels?
There are a variety of funds with social and environmentally conscious lineups.
(Others take the money and reinvest it.)
Sector-based funds:Want to focus on real-estate?
Theres an index fund for whatever industry interests you.
But dont let their diversity stop you from investing in index funds.
Start out with basic core [index funds], Spero said.
S&P 500, total market index.
Keep it simple, straightforward, and broad, and dont get too clever, he said.
The lower the better when it comes to this.
High turnover ratios can equal significant expenses that are then transferred to the investor.
Index funds are friendly to new investors, but they arent the only path to building wealth.
Its a relatively good product to start your investing process, but its not an end destination.
